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BRILLIANT’S Leverage Analysis 375

These fixed costs can be classified as: {\$ŠñS> H$m°ñQ> H$mo Xmo ^mJm| _| {d^º$ {H$`m Om gH$Vm h¡…
(i) Those elements of operating expenses (i) Am°naoqQ>J EŠgnoÝgog H$m dmo ^mJ Omo ñWm`r àH¥${V
which are fixed in nature. H$m h¡&
(ii) Those non-operating expenses, such as in- (ii) Zm°Z-Am°naoqQ>J EŠgnoÝgog, O¡go ã`mO, Omo {H$ ñWm`r
terest payments, which are also relatively àH¥${V H$m ì`` hmoVm h¡Ÿ&
fixed in nature.
Note: The fixed operating expenses de- ZmoQ>… {\$ŠñS> Am°naoqQ>J EŠgnoÝgog go CËnÞ brdaoO
termine operating leverage and fixed finan- Am°naoqQ>J brdaoO H$hbmVm h¡Ÿ& ñWm`r \$m`ZopÝe`c ì``m|
cial expenses determine financial leverage of go \$m`ZopÝe`c brdaoO {ZYm©[aV hmoVm h¡Ÿ& BZ XmoZm|
a firm. These two leverages can be joined to- brdaoO H$m H§$~mB§S> n[aUm_ Q>moQ>c `m H§$~mB§S> brdaoO
gether to provide a measure of total or com- H$hbmVm h¡Ÿ& 
bined leverage.
Q.40. What is meant by operating leverage? Explain its utility.
Am°naoqQ>J brdaoO go ³¶m Ame¶ h¡? BgH$s Cn¶mo{JVm g‘PmB¶o&
OR
What is Operating Leverage? / Am°naoqQ>J brdaoO ³¶m h¡?
OR
Write a short note on Operating Leverage. / Am°naoqQ>J brdaoO na g§{jßV {Q>ßnUr {b{IE&
OR
Explain the significance of operating leverage. / Am°naoqQ>J brdaoO H$m ‘hÎd g‘PmB¶o&

Operating Leverage Am°naoqQ>J brdaoO

Operating Leverage arises when there are Am°naoqQ>J brdaoO H$s pñW{V V~ CËnÞ hmoVr h¡ O~
fixed operating costs in the firm’s cost struc- \$_© `m H$ånZr Ho$ cmJV ñQ´>ŠMa _| H$moB© {\$ŠñS> H$m°ñQ>
ture. Fixed operating costs do not include debt hmoŸ& ñWm`r g§MmcZ cmJV _| S>oãQ> ã`mO em{_c Zht hmoVm,
interest which is a fixed financial cost. It in-
cludes costs such as administrative costs, de- Omo EH$ ñWm`r \$m`ZopÝe`c cmJV h¡Ÿ& `hm§ {\$ŠñS> H$m°ñQ
preciation, selling and advertisement ex- go Ame` àemg{ZH$ ì``, õmg, {dH«$` Ed§ {dVaU bmJVm|
penses etc. Am{X go h¡Ÿ&
The cost structure of any firm gives rise to Bg_| cmoZ na ã`mO H$mo gpå_{bV Zht {H$`m OmVm
operating leverage because of the existence of Š`m|{H$ dh \$m`ZopÝe`c H$m°ñQ> _mZr OmVr h¡Ÿ& `{X H$ånZr
fixed nature of costs. The fixed cost is treated as H$s bmJV g§aMZm _| {\$ŠñS> H$m°ñQ em{_b h¡ Vmo Am°naoqQ>J
fulcrum of a leverage. The changes in sales are brdaoO H$s pñW{V CËnÞ hmoJrŸ& dmñVd _|, {\$ŠñS> H$m°ñQ
related to changes in revenue. The fixed costs hr brdaoO H$m AmYma h¢Ÿ& {dH«$` _| n[adV©Z H$m grYm
do not change with the changes in sales. The à^md bm^ na n‹S>Vm h¡Ÿ& {dH«$` _| n[adV©Z hmoZo na ^r
operating leverage occurs when a firm has fixed {\$ŠñS> H$m°ñQ An[ad{V©V ahVr h¢Ÿ& My§{H$ {\$ŠñS> H$m°ñQ
costs which must be recovered irrespective of H$m {dH« ` go H$moB© g§~§Y Zht hmoVm Bg H$maU {dH«$` H$_
sales volume. The fixed costs remaining same, hmo, A{YH$ hmo `m {~ëHw$b ^r Zht hmo V~ ^r ñWm`r bmJVm|
the percentage change in operating revenue H$mo H$da H$aZm g~go nhbo Amdí`H$ hmoVm h¡Ÿ& {\$ŠñS>